China: Growth Great but Inflation Bad

 Econintersect:  Growth in a couple of key economic measurements should have been big news, but inflation completely stole the day for China.  May industrial value added output (+13.3% YoY) and retail sales of consumer goods (+16.9% YoY) were both well above expectations.  But inflation rose to the highest levels in nearly three years.  CPI hit 5.5% and PPI rose 6.8% .  The inflation rate has exceeded the government’s 4% target for  each of the first five months of 2011.From Bloomberg:

The Shanghai Composite Index climbed on signs that the economy is maintaining momentum even after interest-rate increases and real-estate curbs. The ruling Communist Party aims to tame prices and sustain growth after riots this month by migrant workers in the manufacturing hub of Guangdong showed the risk of social instability.

“The central bank needs to persist with the inflation fight as price gains are proving stickier than previously thought,” Yao Wei, a Hong Kong-based economist with Societe Generale SA, said before today’s release. “Any let-up would see a rebound.” Yao sees inflation peaking at 6.5 percent this month before moderating.

Shanghai’s stock benchmark rose 0.5 percent as of 10:13 a.m. local time. The increase in industrial output compared with April’s 13.4 percent gain from a year earlier.

Reports from Shanghai Daily:

Sources:  Shanghai Daily and Bloomberg